Industry Slams Exec Pay Proposal, Others Call for More

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By Rob Tricchinelli

July 25 — Industry trade groups argued that a joint Dodd-Frank proposal by the SEC and other regulators to rein in risky compensation packages at large financial institutions goes too far, even as labor and public-interest groups say the initiative isn’t strict enough.

Under the May proposal, firms' executives face at least a four-year wait to receive most bonus pay and would have to give money back if companies experience large losses (89 SLD, 5/9/16).

The divide among the dozens of comment letters reflects an ongoing political debate over efforts to regulate executive compensation in the wake of the financial crisis.

Industry Complaints

The proposal would most strongly curtail activities by financial institutions with $250 billion or more in assets. Companies could claw back bonuses, even if they have already vested, from employees who take inappropriate risks, face enforcement actions or surpass company risk thresholds when that behavior leads to losses.

A coalition of industry groups slammed the proposal, arguing the regulators exceeded their Dodd-Frank mandates in an attempt to impose a “one-size-fits-all approach” to the issue rather than a principles-based approach.

They also faulted the proposal for its definitions of “risk-takers” subject to the restrictions, the wait time and the record-keeping costs it would impose.

The litany of complaints was aired by the American Bankers Association, Center on Executive Compensation, Financial Services Roundtable, Securities Industry and Financial Markets Association, The Clearing House and U.S. Chamber of Commerce in a joint comment.

Stronger Rule

Other groups called for a stronger version of the rule.

“We remain deeply concerned that the Agencies have permitted critical loopholes in the specified deferral and claw back requirements which will significantly undermine the effectiveness of the rule in practice,” Americans for Financial Reform said. “A close reading of this rule shows that at multiple points the Agencies have inserted ‘back doors' that would permit large financial institutions to escape full compliance with key requirements to hold incentive pay at risk long-term.”

The AFL-CIO, Public Citizen and Better Markets made similar arguments.

Joint Proposal

The proposal, required by Section 956(b) of the Dodd-Frank Act, was a product of six regulators. The Securities and Exchange Commission was the last to propose the rule, following the Office of the Comptroller of the Currency, Federal Reserve Board, Federal Deposit Insurance Corporation, Federal Housing Finance Agency and National Credit Union Administration.

The rule was first proposed in 2011 (42 SLD, 3/3/11).

To contact the reporter on this story: Rob Tricchinelli in Washington at rtricchinelli@bna.com

To contact the editor responsible for this story: Phyllis Diamond at pdiamond@bna.com

For More Information

For all the comment letters, visit https://www.sec.gov/comments/s7-07-16/s70716.htm

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